Sunday, January 29, 2012

Jacobs Engineering (NYSE: JEC) reports improved revenues

Below, is a note from Morningstar Research to investors about Jacobs Engineering, received in my e-mail in-box on January 28, 2012.

Jacobs Engineering JEC reported fiscal first-quarter results, with revenue increasing almost 12% from the same period last year and operating margins improving almost 100 basis points to 5.4%. This is the third quarter the company experienced top-line improvement, which we attribute primarily to a higher volume of technical services Jacobs provided to oil sands, petrochemical, and mining projects. We think the healthier activity level in these markets paints a positive picture for Jacobs, a company traditionally active in the oil and gas upstream production and downstream processing arena. Through the well-timed Aker acquisition, Jacobs also gained some momentum in the metals and mining field, which should attract additional growth opportunities. We think Jacobs is on the right track to deliver better performance in 2012 than 2011 despite some headwinds in the infrastructure and government support service markets. The company ended the quarter with almost $14.5 billion of backlog, as its higher services backlog offset the lower construction workload. We continue to believe that real revenue growth will not pick up steam until projects move from the feasibility study and planning phase to the construction phase, which we think will be a 2013-14 story. Compared with the service backlog, which typically carries a better near-term gross margin but generally a shorter duration, the construction management backlog represents Jacobs' potential in intermediate revenue growth for the next few years (although construction projects may have lower or more volatile margin profiles). In the next few quarters, we would look for Jacobs to move toward adding to its construction workload, which will be a stronger sign that the engineering and construction industry is finally in the recovery mode. In the meantime, the thawing of energy, petrochemical, and mining project pipelines should provide some much needed opportunities for most engineering and construction companies in our coverage universe in 2012.
 Min Tang-Varner, CFA

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